13. INCOME TAXES

The components of income before income taxes consisted of the following:

SCHEDULE OF COMPONENTS OF INCOME BEFORE INCOME TAXES 

Income tax provision consisted of the following:

SCHEDULE OF INCOME TAX PROVISION 

As of December 31, 2025 and 2024, the total current state tax expense/(benefit) is $(234) and $0, respectively. There are no current federal taxes payable and state current taxes is related to franchise and minimum state taxes in California, Texas and Utah. The federal and state deferred taxes benefit are as a result of the valuation allowance release in relation to the acquisition.

The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes were as follows:

 SCHEDULE OF PROVISION OF INCOME TAXES

Significant components of the Company’s deferred tax assets and liabilities are as follows:

 SCHEDULE OF COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES

Income taxes are paid to the following jurisdictions:

 SCHEDULE OF INCOME TAXES

ASC 740 requires that the tax benefit of net operating loss carry-forwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carry forward period. Because of the Company’s recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, recorded a 100% valuation allowance against all deferred tax assets as of December 31, 2025 amounting to $69.7 million.

Any uncertain tax positions would be related to tax years that remain open and subject to examination by the relevant tax authorities. The Company has no liabilities related to uncertain tax positions or unrecognized benefits for the years ended December 31, 2025 and 2024.

In July 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted into law in the U.S. The OBBBA includes numerous provisions that affect corporate taxation, including changes to bonus depreciation, the expensing of domestic research costs, and modifications to certain U.S. international tax rules. The Company has analyzed the impacts of the OBBBA and reflected them in the current period. These impacts do not have a material effect on the tax rate for the year ended December 31, 2025.

As of December 31, 2025 and 2024, the Company had federal net operating loss carry-forwards of approximately $150.9 million and $131.2 million, respectively, and state net operating loss carry-forwards of approximately $96.9 million and $88.3 million, respectively, which may be available to offset future taxable income for tax purposes. As of December 31, 2024, approximately $12.6 million of federal net operating loss carry-forwards begin to expire in 2034. While the remaining amount of approximately $138.4 million does not expire, the Tax Cuts and Jobs Act of 2017 limits the amount of federal net operating loss utilized each year after December 31, 2017 to 80% of taxable income. As of December 31, 2025, approximately $46.7 million of state net operating loss carry-forwards begin to expire in 2031.

Net operating loss carryforwards may be limited upon the ownership change under IRS Section 382. IRS Section 382 places limitations (the “Section 382 Limitation”) on the amount of taxable income which can be offset by net operating loss carry-forwards after a change in control (generally greater than 50% change in ownership) of a loss corporation. Generally, after a change in control, a loss corporation cannot deduct operating loss carry-forwards in excess of the Section 382 Limitation. Due to these “change in ownership” provisions, utilization of the net operating loss may be subject to an annual limitation regarding their utilization against taxable income in future periods. The Company has not concluded its analysis of Section 382 through December 31, 2023 but believes the provisions will not limit the availability of losses to offset future income.

The Company is subject to income taxes in the U.S. federal jurisdiction and various state jurisdictions. The tax regulations within each jurisdiction are subject to interpretation of related tax laws and regulations and require significant judgment to apply. As of December 31, 2025, tax years 2022 through 2024 remain open for IRS audit and tax years 2021 through 2024 remain subject to examination in significant state tax jurisdictions. The Company has not received any notice of audit from the IRS or state authorities for any of the open tax years.